Stamp Tax on Pension Fund Management Companies: Commissions Exemption Ruling (CAAD 441/2017-T)

ARBITRAL DECISION

The arbitrators Cons. Jorge Lopes de Sousa (arbitrator-president), Dr. Luís Ricardo Farinha Sequeira and Dr. Ana Teixeira de Sousa (arbitrators assessors), designated by the Deontological Council of the Administrative Arbitration Centre to form the Arbitral Tribunal, constituted on 27-09-2017, agree as follows:

1. Report

A…, S.A., holder of collective person identification number…, headquartered at Rua … n.º…, ... in Lisbon (hereinafter referred to as the "Claimant"), came, under Decree-Law No. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters or "LFATM"), to file a request for arbitral pronouncement seeking the annulment of additional Stamp Tax assessments No. 2015…, in the amount of € 12,891.12; No. 2015…, in the amount of € 24,868.31; No. 2015…, in the amount of €27,030.55; and No. 2015…, in the amount of € 26,514.07 relating, respectively, to the years 2011, 2012, 2013 and 2014; as well as the assessments of compensatory interest Nos. 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, in the total amount of € 2,008.72, relating to the year 2011; 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, in the total amount of € 3,162.86, relating to the year 2012; 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, in the total amount of € 2,362.61, relating to the year 2013; and 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, in the total amount of € 1,269.65, relating to the year 2014.

The Claimant further requests compensation for guarantees improperly provided.

The AUTHORITY FOR TAX AND CUSTOMS is the Respondent.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Authority for Tax and Customs on 25-07-2017.

Pursuant to the provisions of paragraph a) of No. 2 of Article 6 and paragraph b) of No. 1 of Article 11 of the LFATM, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council designated as arbitrators of the collective arbitral tribunal the signatories, who communicated acceptance of the assignment within the applicable time frame.

On 12-09-2017 the parties were duly notified of this designation and did not manifest any intention to refuse the designation of arbitrators, in accordance with the combined provisions of Article 11 No. 1 paragraphs a) and b) of the LFATM and Articles 6 and 7 of the Deontological Code.

Thus, in compliance with the provisions of paragraph c) of No. 1 of Article 11 of the LFATM, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 27-09-2017.

The Authority for Tax and Customs responded defending that the claim should be ruled unfounded.

By order of 02-11-2017 a hearing was dispensed and it was decided that the proceedings would continue with written arguments.

The parties submitted arguments.

The arbitral tribunal was properly constituted, in accordance with the provisions of Articles 2, No. 1, paragraph a), and 10, No. 1, of Decree-Law No. 10/2011, of 20 January, and is competent.

The parties are duly represented, possess legal personality and capacity, are entitled to sue and are represented (Articles 4 and 10, No. 2, of the same instrument and Article 1 of Ordinance No. 112-A/2011, of 22 March).

The proceedings are not affected by any nullities and there are no exceptions or any obstacle to the examination of the merits of the case.

2. Factual Matter

2.1. Proven Facts

Based on the elements contained in the file and in the administrative proceedings attached to the records, the following facts are considered proven:

a) The Claimant is a pension fund management company (hereinafter "PFMC");

b) Between the years 2011 and 2014, the Claimant, while acting as a PFMC, conducted the management activity of the following pension funds: Pension Fund B…, Pension Fund C…, Pension Fund D…, Pension Fund E…, Pension Fund F…, Pension Fund G…, Pension Fund H…, Pension Fund I…, Pension Fund J…, Pension Fund K…, Pension Fund L…, Pension Fund M…, Pension Fund N…, Pension Fund O…, Pension Fund P…, Pension Fund Q…, Pension Fund R… and Pension Fund S… (hereinafter collectively referred to as "pension funds");

c) Over the years, the Claimant charged the pension funds monthly commissions as consideration for providing its management services;

d) When collecting these commissions, the Claimant understood that, in accordance with the Stamp Tax Code (hereinafter, "STC") and the General Table of Stamp Tax (hereinafter, "GTST"), it did not have to charge Stamp Tax on the same;

e) Under Service Orders Nos. OI2015…, OI2015…, OI2015… and OI2015…, all dated 30-03-2015, the Tax Inspection Services carried out an inspection action to analyze the tax treatment of management commissions charged by the Claimant to the pension funds, for the tax periods of 2011, 2012, 2013 and 2014, in light of the provisions of the STC and Article 4 of Decree-Law No. 20/86, of 13 February;

f) By means of Official Letter No. … of 14-08-15, the Claimant was notified to comment on the Draft Tax Inspection Report;

g) On 02-10-2015, the Claimant was notified of the Tax Inspection Report, a copy of which is attached as document No. 6 with the request for arbitral pronouncement, which is hereby considered reproduced, in which, among other things, the following is stated:

III. DESCRIPTION OF FACTS AND GROUNDS OF PURELY ARITHMETICAL CORRECTIONS TO TAXABLE MATTER AND TAX

III-1. Tax Treatment of Commissions Received by the Management Company

From the analysis carried out on the elements presented by the taxpayer it was found that the pension fund management company did not proceed with the assessment of VAT or Stamp Tax on the commissions charged in the context of the provision of pension fund management and administration services.

Concerning the tax treatment of these commissions, it is agreed that they are VAT exempt pursuant to paragraph g) of No. 27 of Article 9 of the VAT Code, whether the management of pension funds is carried out by insurance companies in the "Life" branch, or by companies constituted exclusively for that purpose.

This understanding is based on the interpretation that the VAT exemption enshrined in paragraph g) of No. 27 of Article 9 of the VAT Code, for the operations of "administration or management of investment funds", in line with the wording of paragraph g) of No. 1 of Article 136 of Directive 2006/112/EC, of the Council of 28 November 2006, on the common system of VAT, is applicable to any common investment fund", regardless of its nature and purpose.

VAT exemption is a "sine qua non" condition for the incidence of Stamp Tax (see No. 2 of Article 1 of the STC).

With the aim of clarifying whether the management commissions of Pension Funds paid to Pension Fund Management Companies meet the requirements of objective and subjective nature for subjection to Stamp Tax under the classification of Item 17.3.4 of the GTST - other commissions and consideration for financial services, Information I2014… from the DS of IMT (Annex 1) was sought, of 10-11-2014, which was approved by an endorsing order of the Director of Services (acting) on 12-11-2014:

"(...) The commissions charged to a Fund by a PFMC cumulatively meet the elements of objective and subjective nature contained in Item 17.3.4 of the GTST, and are accordingly subject to Stamp Tax, by virtue of the provisions of No. 1 of Article 1 of the STC".

The Claimant does not assess Stamp Tax on the management commissions and subscription commissions because it understands that they are exempt from Stamp Tax under paragraph e) of No. 1 of Article 7 of the STC.

It is therefore necessary to determine whether the exemption provided for in paragraph e) of No. 1 of Article 7 of the STC is applicable to the situation under analysis. On this matter, the Centre for Tax and Customs Studies (CTCS) duly issued Opinion No. 25/2013 (Annex 2). The exemption provided for in the said legal provision is not applicable to all commissions covered by Item 17.3.4 but only to those directly linked to credit granting operations, within the scope of activity exercised by the institutions and entities referred to in that regulation, which does not apply in the case at hand.

Tax exemptions have an exceptional nature, contrary to the principles of tax capacity and generality of taxation, and should therefore be characterized by observance of closed typicality, as a feature of the legislative activity creating them.

Paragraph e) of Article 7 of the STC is thus worded:

"e) Interest and commissions charged, guarantees provided and, likewise, the use of credit granted by credit institutions, financial companies and financial institutions to venture capital companies, as well as to companies or entities whose form and purpose meet the types of credit institutions, financial companies and financial institutions provided for in Community legislation, all of them domiciled in the Member States of the European Union or in any State, with the exception of those domiciled in territories with privileged tax regimes, to be defined by order of the Minister of Finance; (Wording of Law No. 107-B/2003, of 31 December)"

It should be understood that when the legislator says, "and likewise the use of credit granted", it identifies and delimits the intrinsic relationship existing between those perfectly identified realities and credit, and does so in the sense that the latter must be considered as the essential and prior element in relation to the others; the ground used by the legislator to justify recognition of the exemption in relation to interest, commissions charged and guarantees provided will be the same for credit, to the extent that these are accessories of the latter, that is, only interest, commissions and guarantees that result from the prior existence of credit granted that is directly and intrinsically related to them fall within the legal provision. There is no interest without prior credit granted; interest "and likewise the use of credit granted". The same reasoning should be applied to the other operations: commissions, guarantees, "and likewise the use of credit granted" from which they resulted.

Article 37 of Law 30-C, of 29 December of 2000-1 Series A - State Budget for the Year 2001, introduced some innovations:

"Article 37.

Stamp Tax

1 - Article 1 of Law No. 150/99, of 11 September, shall have the following wording. "Article 1.

1 - ...

2 - The forms of printed documents required to comply with the obligations imposed by the Code shall be approved by order of the Minister of Finance."

2 - Articles 4, No. 2, 6, Nos. 1, paragraphs e) and f), 2 and 3, 8, 13, paragraph g), 14, paragraphs a), f) and i), 15, 17, 18, 20, 22, 26, 27, No. 1, 30, Nos. 8 to 9, 32 and 34, No. 1, of the Stamp Tax Code, approved by Law No. 150/99, of 11 September, shall have the following wording: [...]

Article 6.

[...]

1 - [...]

e) Interest charged and the use of credit granted by credit institutions and financial companies to institutions, companies or entities whose form and purpose meet the types of credit institutions and financial companies provided for in Community legislation, all of them domiciled in the Member States of the European Union, or in any State, with the exception of those domiciled in territories with privileged tax regimes to be defined by order of the Minister of Finance;

f) Commissions charged by credit institutions to other institutions of the same nature or entities whose form and purpose meet the types of credit institutions provided for in Community legislation, domiciled in the Member States of the European Union, or in any State, with the exception of those domiciled in territories with privileged tax regimes to be defined by order of the Minister of Finance.

2 - The provisions in paragraphs e) and f) apply only to financial operations directly intended for credit granting, within the scope of the activity exercised by the institutions and entities referred to in those paragraphs.

(...)"

The legislator's concern is noted, which merely makes an authentic interpretation of paragraphs e) and f), in specifying that the exemptions provided for in these two paragraphs are restricted to "financial operations directly intended for credit granting".

Unlike what is stated in the CTCS Opinion, it is not No. 2 of Article 37 of Law No. 30-C/2000 that provides for the limitation of the exemption, but rather No. 2 of Article 6 of the STC itself.

For all purposes, what was proposed to be clarified in the Opinion, and should be considered as achieved, when the Budget Law for 2001 is invoked, was to demonstrate that, in reality, the legislator's intention always was, and should be understood as remaining so, to limit the application of the exemption norm precisely to credit granting and to the interest and commissions associated with it. No. 2 of Article 37 of Law No. 30-C/2000 introduces a new provision and renumbers the previous No. 2 of Article 6, which became No. 3. And because it is understood that this was always the legislator's intention, the legislative technique employed was maintained in the Budget Law for 2002, which did not amend the indicated provisions. Two years after the amendment to Article 6, the legislator understood that the interpretative sense to be given to paragraphs e) and f) was clarified, and through the Budget Law for 2003, restored in No. 2 the original text introduced with Law No. 150/99 that approved the Stamp Tax Code; the legislator had made the authentic interpretation of the rule in order to specify what was its intention, and only an expansive interpretation admitted by Article 10 of the EBF could distort it.

The guiding thread in the evolution of the exemption norm would thus be defined:

• First, interest (which always presupposes the existence of credit);

• Then, interest and credit from which they result;

• And, finally, credit and the interest and commissions arising from it.

It should thus be maintained that the exemption in question only applies to commissions provided for in Item 17 when they are directly linked to credit granting operations, within the scope of the activity exercised by the institutions and entities referred to in that regulation.

In reality, despite successive amendments to the wording of paragraph e) of No. 1 of Article 7 of the STC (previous Article 6 of the STC) and the reading given to it, we can only conclude that this exemption cannot apply to any commission charged, but only to those that have underlying operations intended for credit granting.

The exemption granted in paragraph e) of No. 1 of Article 7 (previous Article 6) of the STC as worded by Law No. 107-B/2003, of 31 December, has credit granted under the terms mentioned in such regulation as its catalytic element.

This same understanding is confirmed in the Decision of the Central Administrative Court South, Case No. 02764/08, of 21-09-2010, which states:

"[…]

Every legal norm contains in itself a statutory provision and a provision, and the transcribed one", that is, the said Article 7, No. 1, paragraph e), "is no exception to this rule.

Decomposing the rule from the perspective of the referred structure, we obtain the following result: on the one hand, the scope of application of the exemption embodied in it is not any and every commission but only those relating to credit granting and financial operations, on the other hand the universe of subjects involved is limited to financial institutions, credit institutions and financial companies."

• In fact, it does not make any sense to establish an autonomy between interest, commissions charged and guarantees provided, on the one hand and the use of credit granted, on the other, so that, only with respect to the latter, it could be connected dependently with the granting credit institutions and financial companies or institutions and the observing companies or entities, in form and in object, of the types of credit institutions and financial companies and financial institutions as beneficiaries.

• In reality, it appears incomprehensible to us that the legislator, from the outset, would refer to interest, commissions charged and guarantees provided, intending to refer to realities with existence "a se", for purposes of tax exemption, which would result, to have the scope intended by the claimant, that all and any of them, insofar as they were reported to operations between companies observing the location rule stated there, would be exempt.

• But more importantly than this is that it would become even more incomprehensible that things would proceed this way with respect to the said interest, commissions and guarantees and already with respect to the use of credit the exemption would be restricted, only here, to financial operations conducted between those mentioned institutions.

• Rather, the only reading that appears legitimate to us, as coherent, of the provision in question is that it refers to interest, to commissions charged, to guarantees provided or to mere use, in all cases, by reference to credit granted under the terms stipulated in the regulation under analysis".

(...)

"from the outset, it must be concluded that, given that it is not, in this case, the granting of any type of credit, nor much less the type of institutions listed in the law, the commissions in question here were not exempt from Stamp Tax, covered by the mentioned Article 7, No. 1, paragraph e), of the Stamp Tax Code"

Regarding the question of the possible application of the exemption arising from an expansive interpretation of Article 4 of Decree-Law No. 20/88, of 13/2 "Stamp Tax exemptions apply to (...) operations on certificates representing units of participation in mobile investment funds", the said IMT information (Annex 1) alleges that '(...) in comparing the meaning of the law, the interpreter should not confine itself solely to the literal meaning, but rather should investigate its current meaning from a systematic perspective, however it cannot dispense with finding a minimum of verbal correspondence in the legal text.

Thus, without making a clean slate of the provisions of Articles 11 of the General Tax Law (GTL) and 9 of the Civil Code (CC), depriving them of their useful meaning, it must be presumed that in Article 4 of Decree-Law No. 20/86, of 13/2, the legislator, on this matter, enshrined the most correct solutions and knew how to express its thoughts in terms appropriate to establishing that the exemption from Stamp Tax would only operate for mobile funds".

In fact, (...) if we go through the relevant legislation on Pension Funds - from Decree-Law 323/85 of 6 August to Decree-Law 12/2006, of 20 January, passing through the Tax Benefits Statute itself (EBF) and culminating in the Stamp Tax Code (STC) - it is not apparent or glimpsed that the legislator intended to exempt Stamp Tax on management commissions paid by Funds to their respective PFMCs.

If we accept this argument as valid, we would not be doing an expansive interpretation, but rather filling a gap through analogical interpretation of Article 4 of the cited regulation, disregarding the rules of legal-tax interpretation and violating tax law regarding tax benefits.

Due to their exceptional nature, in that they depart from some of the fundamental principles of tax law - tax capacity, equality and generality - exemptions, as tax benefits, are not susceptible to analogical integration, being included in the reservation of law relating to Parliament and subject to the principle of tax legality, in its variant of typicality; that is, their creation, alteration or extinction result directly from the Constitution and the law.

It is therefore neither constitutionally nor legally permissible for the interpreter or the Tax Authority to fill an apparent gap in a tax exemption rule, as the PFMC has done (...).

(...) In view of the above, it should be concluded that the exemption provided for in Article 4 of Decree-Law No. 20/86, of 13/2, is not applicable to management and administration commissions charged by Managing Entities to their respective Funds. (...).

In light of the grounds set out in the Opinion issued by the DSIMT, the following conclusions are advanced:

a) It is unequivocal that PFMCs meet the type of "any other financial institutions" provided for in Item 17.3 of the GTST;

b) Thus, management commissions paid by Funds to PFMCs meet the requirements of objective and subjective nature for subjection to Stamp Tax under the classification in Item 17.3.4 of the GTST - 'Other commissions and consideration for financial services';

c) The exemption from Stamp Tax provided for in Article 4 of Decree-Law 2006, of 13 February, is not applicable to management and administration commissions charged by Managing Entities to their respective Funds;

d) Similarly and in accordance with Opinion 25/2013 of the CTCS, this exemption is not applicable to all commissions covered by Item 17.3.4 but only to those directly linked to credit granting operations, within the scope of activity exercised by the institutions and entities referred to in that regulation".

The DSIMT concludes that, "under No. 1 of Article 1 of the STC and Item 17.3.4 of the GTST, management and administration commissions charged by Managing Entities to their respective Funds are subject to Stamp Tax, and therefore do not benefit from either the exemption provided for in Article 4 of Decree-Law 20/86, of 13 February, or the exemption provided for in paragraph a) of No. 1 of Article 7 of the STC."

The concept of commission to which this regulation refers encompasses not only management commissions charged by Pension Fund Management Companies to Funds, but all other commissions, provided they are not related to credit granting operations, namely subscription commissions.

The Claimant, as the creditor of the management commission and subscription commission, is the passive subject of Stamp Tax [Article 2 No. 1 paragraph b) of the STC]. Under No. 1 combined with paragraph g) of No. 3 of Article 3 the Tax constitutes a charge on each of the Funds managed by the Claimant, as the holders of the economic interest, the taxable value being the value of the respective commission, as per No. 1 of Article 9 and No. 1 of Article 22, both of the STC combined with Item 17.3.4 of the GTST.

h) Following the corrections made in the Tax Inspection Report, the Claimant was notified of the Stamp Tax assessments and compensatory interest assessments (as per document No. 7 attached), summarized in the table below:

[Table content omitted for brevity]

i) The Claimant provided a guarantee at the amounts set by the Chief Deputy Financial Officer of the Lisbon Finance Service…, as per the surety insurance policy attached as document No. 8 with the request for arbitral pronouncement, the content of which is hereby considered reproduced;

j) The Claimant filed a petition for reconsideration of the assessments on 17-03-2016 (document No. 9 attached with the request for arbitral pronouncement, the content of which is hereby considered reproduced), which received the number …2016…;

k) After being notified to comment on the draft petition for reconsideration decision, the Claimant was notified, through official letter No.…, of 18.05.2017, of the order of 15.05.2017, issued, by delegation of authority, by the Chief of the Administrative Justice Division of the Lisbon Finance Authority, which resulted in the dismissal of the petition for reconsideration filed (document No. 10 attached with the request for arbitral pronouncement, the content of which is hereby considered reproduced);

l) On 24-07-2017, the Claimant filed the request for arbitral pronouncement that gave rise to the present proceedings.

2.2. Unproven Facts and Grounds for the Factual Decision

The proven facts are based on documents submitted by the Claimant.

The Tax Authority did not submit administrative proceedings.

There are no facts relevant to the decision of the case that have not been proven.

3. Matters of Law

The Claimant is a pension fund management company (PFMC).

The corrections made following the inspection actions relate to the fact that the Claimant, as a pension fund management company, did not assess Stamp Tax on the commissions that remunerate the provision of management and administration services provided to their respective Funds.

The Tax Authority understood that, in light of the provisions of No. 1 of Article 1 of the Stamp Tax Code (STC) and Item 17.3.4 of the General Table of Stamp Tax (GTST), the management and administration commissions charged by managing entities to their respective funds are subject to Stamp Tax, and do not benefit from either the exemption provided for in Article 4 of Decree-Law No. 20/86, of 13 February, or the exemption provided for in paragraph e) of No. 1 of Article 7 of the STC.

Item 17.3 of the GTST refers to "operations carried out by or with the intermediation of credit institutions, financial companies or other entities legally equivalent to them and any other financial institutions".

In Item 17.3.4 of the GTST, a rate of 4% is provided for, in relation to "financial institutions" for "other commissions and consideration for financial services".

The first essential issue raised in the present case is whether Pension Fund Management Companies are considered "financial institutions" for purposes of that Item 17.3 of the GTST.

Article 7, No. 1, paragraph e), of the STC establishes, as worded by Law No. 107-B/2003, of 31 December, the following:

1 – The following are also exempt from tax:

(...)

e) Interest and commissions charged, guarantees provided and likewise the use of credit granted by credit institutions, financial companies and financial institutions to venture capital companies, as well as to companies or entities whose form and purpose meet the types of credit institutions, financial companies and financial institutions provided for in Community legislation, all of them domiciled in the Member States of the European Union or in any State, with the exception of those domiciled in territories with privileged tax regimes, to be defined by order of the Minister of Finance;

The second essential issue raised in the present case is whether all commissions are covered by Item 17.3.4, or only those directly linked to credit granting operations, within the scope of activity exercised by the institutions and entities referred to in that regulation, which is the position of the Tax Authority.

3.1. Question of Subjective Incidence

The Claimant argues that PFMCs cannot be considered, for purposes of Stamp Tax incidence, as "financial institutions", on pain of unconstitutionality due to violation of the principle of legality.

The Claimant makes the following conclusions on this issue:

A. Just as the Respondent acknowledged in its Response, the scope of subjective incidence of Item 17.3 of the GTST depends on certain entities being legally qualified as "credit institutions, financial companies or other entities legally equivalent to them and any other financial institutions" so that they may acquire the status of passive subjects of tax in relation, namely, to the commissions they charge to third parties.

B. Now, as follows from the extensive explanations submitted by the Claimant in its statement of grounds (to which reference is made for reasons of economy) and even (by comparison) from the weak, senseless and illegal justifications of the Respondent in its defence, there is not a single rule in force in Portugal from the branch of Banking and Financial Law that would allow any interpreter and law applier to qualify the Claimant as "credit institutions, financial companies or other entities legally equivalent to them [or] any other financial institutions".

C. Indeed, in accordance with the General Framework of Credit Institutions and Financial Companies (GFCISFC), particularly Article 3, neither pension fund management companies (like the Claimant) nor pension funds are qualifiable as "credit institutions".

D. Similarly, it follows from the GFCISFC, namely Article 6, that pension fund management companies do not fall under the concept of "financial companies" nor are they equivalent to them.

E. Also in light of the normative provisions contained in the GFCISFC (e.g. Article 2), the Securities Code, Decree-Law No. 12/2006, of 20.01, and Law No. 147/2015, of 09.09 (which approved the Legal Framework for Access to and Exercise of Insurance and Reinsurance Activity), and duly clarified in the statement of grounds, it is possible to exclude – without difficulty – pension fund management companies from the scope of the legal definition of "financial institutions" and entities equivalent to them.

F. Indeed, it is revealing that the Respondent expressly admits in its Response that the GFCISFC excludes from the national banking and financial system entities in the insurance sector and pension funds.

G. Hence, it cannot be accepted – as it would be illegal – that the Respondent decides "by force" to qualify the Claimant as a "financial institution" using arguments as disconnected as its subjection to supervision by the current ASF (former ISP), the obligation to comply with rules associated with money laundering and terrorism (!), the existence of a "recital" (which is not law nor contains any legal definition) of a Community directive that refers, with technical inaccuracy, to the expression "financial institutions" in connection with pension funds, its characterization as a "qualified investor" under the Securities Code (!!) and/or its inclusion within certain statistical fields of the Bank of Portugal (!!!).

H. The Claimant understands that this panoply of arguments, dumped throughout the inspection proceedings and repeated in the Respondent's Response is not innocent: indeed, the "tangle" allows it to indicate the same supposed "arguments" (regardless of their intrinsic force and their lack of internal coherence) several times, as if they were different "arguments".

I. However, this "argumentative method", rather than demonstrating what the Respondent intends, shows precisely the opposite (i.e. the illegality of its action), given that a rule of tax incidence is at issue, whose defining character must be certain, objective and be "drawn in the law in a sufficiently determined manner", as stated by Gomes Canotilho and Vital Moreira.

J. It is also worth noting that the Tax Authority's interpretation is unconstitutional, due to violation of the principle of fiscal legality and the principle of typicality and also the principles of equality and legal certainty, as it allows the Tax Authority an unacceptable breadth to decide whether or not to include, according to its criteria, a multitude of distinct entities, within the scope of the tax incidence rule.

K. Thus, the interpretation made by the Tax Authority of the rule of subjective incidence contained in Item 17.3, in addition to being illegal, is also unconstitutional, due to violation of the constitutional principles mentioned above.

The Tax Authority argues that the question of whether or not entities managing pension funds qualify as financial institutions has already been addressed in various arbitral decisions (namely those issued in proceedings 348/2016-T, 633/2016-T, 667/2016-T and 9/2017-T), in the sense it defends that this qualification applies to them.

The formula used in Item 17.3 of the GTST encompasses the generality of "financial institutions", as can be concluded from the fact that its final part refers to "any other financial institutions", in addition to those expressly indicated as "credit institutions, financial companies or other entities legally equivalent to them".

Since these concepts are not defined in tax legislation, reference must be made to those used in other branches of law, as follows from No. 2 of Article 11 of the GTL, which establishes that "whenever terms specific to other branches of law are used in tax norms, they should be interpreted in the same sense as that which they have there, unless something else is directly derived from the law".

The concepts of "credit institutions" and "financial companies" are defined in the General Framework of Credit Institutions and Financial Companies (GFCISFC), approved by Decree-Law No. 298/92, of 31 December.

Under Article 2 of this instrument, "credit institutions are companies whose activity consists in receiving funds from the public as deposits or other repayable funds, in order to apply them on their own account through the granting of credit".

Article 5 of the same instrument defines "financial companies" as "companies that are not credit institutions and whose principal activity consists of exercising one or more of the activities referred to in paragraphs b) to i) of No. 1 of the preceding article, except financial leasing and factoring".

Among the activities for which this Article 5 refers is the management of assets, whether those that are embodied in portfolios of securities [paragraph h) of No. 1 of Article 4] or "other assets" [paragraph i) of No. 1 of Article 4 of the same GFCISFC].

Decree-Law No. 12/2006, of 20 January, is the instrument that "regulates the constitution and operation of pension funds and the entities managing pension funds and transposes into the national legal order Directive No. 2003/41/EC, of the European Parliament and Council, of 3 June, on the activities and supervision of institutions providing occupational pension schemes".

For purposes of this instrument, "pension fund" is considered as "the autonomous assets exclusively devoted to the realization of one or more pension plans and or health benefit plans, and may also simultaneously be devoted to financing of an equivalent mechanism under Law No. 70/2013, of 30 August" [Article 2, paragraph c) of this Decree-Law No. 12/2006].

Under Article 32 of this instrument, "pension funds may be managed either by companies constituted exclusively for that purpose, designated in this decree-law as managing companies" which "carry out all their acts in the name and on behalf of the members, participants, contributors and beneficiaries and, in their capacity as administrators of the funds, may trade in securities or immovable property, make bank deposits in the name of the fund and exercise all rights or perform all acts that directly or indirectly relate to the assets of the fund".

This activity of asset management of the fund is one of the typical activities of "financial companies", as inferred from Article 5 of the GFCISFC, with reference to paragraph i) of No. 1 of its Article 4.

Thus, it appears that there is consistent normative support to conclude that the Claimant, a manager of pension fund assets, falls within the concept of "financial company" in light of the definition provided by the GFCISFC.

In this light, the fact that No. 3 of Article 6 of the GFCISFC establishes that "for purposes of this instrument, insurers and pension fund management companies are not considered financial companies" cannot be seen as an exclusion of these companies from the scope of the said concept, but rather as a confirmation, since this express exclusion of the application of the regime provided for in the GFCISFC can only be logically explained by the fact that these companies fall within the concept of "financial companies" defined in its Article 5 with reference to paragraph i) of No. 1 of Article 4, which is, moreover, evident since they are asset management companies.

Thus, the appropriate interpretation of this No. 3 of Article 6 of the GFCISFC is that, although pension fund management companies, as asset management companies that they are, fall within the concept of "financial companies", a choice was made not to apply the regime provided for in that instrument to them, but rather a special regime, which is concretized in Directive No. 2003/41/EC of the European Parliament and Council, of 3 June 2003 and in Decree-Law No. 12/2006, of 20 January.

Moreover, this legislative choice for special regulation of pension funds is clearly revealed by the Preamble to Decree-Law No. 298/92, in which it is stated that a "reform of the general regulation of the Portuguese financial system was carried out, excluding the insurance sector and pension funds". It is a legislative choice that is understandable, since the regime for the constitution of pension funds and access to and exercise of the activity of managing those funds by insurance companies or pension fund management companies had been specially revised by Decree-Law No. 415/91, of 25 October, shortly before Decree-Law No. 298/92.

Thus, it is because the entities managing pension funds that assume the form of companies are "financial companies" with a special regime, and not because they are not financial companies, that No. 3 of Article 6 of the GFCISFC provides for the non-application of this general regime, which is why this rule states that what is provided therein is restricted to what is provided in that same instrument.

Indeed, as stated in the arbitral decision issued in case No. 348/2016-T, in the wake of CARLOS COSTA PINA (Financial Institutions and Markets, Coimbra, 2005, page 249) "this limitation of the concept of financial companies is merely formal, only for purposes of applying the GFCISFC: in reality, insurance companies and pension fund management companies are materially financial institutions, comprising, as such, two relevant institutional subsectors of the financial sector: the insurance sector and the pension funds sector, given that their object consists of carrying out operations that are materially and formally financial. A situation that is not unrelated to the observed trend of 'progressive disappearance of barriers and distinctions between the three traditional financial sectors (banking, securities and insurance)', with the consequent merger of interests and activities between various types of institutions in the financial area, in particular between monetary and non-monetary financial institutions, and the emergence of new concepts such as those of universal banking, bancassurance, or assurfinance, etc., which tend to express formulas for cooperation between financial institutions with distinct but similar objects competing with each other".

In any case, even if No. 3 of Article 6 of the GFCISFC is interpreted as establishing a negative delimitation of the concept of "financial companies", it must still be concluded that Pension Fund Management Companies fall within the broader concept of "financial institutions" used in Item 17.3 of the GTST, since, beyond forming part of the "Portuguese financial system" (as confirmed by the referred preamble to Decree-Law No. 298/92), it is evident that this designation is appropriate for companies that develop primarily financial activities, such as those indicated in No. 4 of Article 32 (trading in securities or immovable property, making bank deposits in the name of the fund and exercising all rights or performing all acts directly or indirectly related to the assets of the fund) and in Article 33 of Decree-Law No. 12/2006, of 20 January (collecting the contributions provided for and ensuring, directly or indirectly, the payments due to beneficiaries and selecting and trading in securities, movable or immovable property, which must constitute the fund, in accordance with the investment policy).

Legal concepts, within tax law and outside it, when not explicitly defined in the law, must be defined through case law and doctrine and, even when legal definitions are provided, the defining rules require interpretation, like all legal rules.

"In the absence of other elements that induce the choice of the less immediate meaning of the text, the interpreter should in principle opt for that meaning which best and most immediately corresponds to the natural meaning of the verbal expressions used".

From this perspective, the designation of "financial institutions" attributed to entities that fall within the "financial system" and whose principal activity is embodied in operations of a financial nature is, certainly, the most appropriate.

On the other hand, in the scope of interpretative activity, the general principles of legal interpretation defined in Article 9 of the Civil Code must be observed, among which the "unity of the legal system" assumes primary relevance. It is because legal interpretation must be carried out from the perspective of a single and coherent legislator that to fill that concept of financial institutions it is relevant to appeal to the totality of legislative instruments, including those that regulate other branches of law or to the considerations contained in preambles and recitals that explicitly use that concept.

Thus, the fact that the entities managing pension funds are expressly referred to as "financial institutions" in Directive No. 2003/41/EC of the European Parliament and Council, of 3 June 2003, on the activities and supervision of institutions providing occupational pension schemes (recitals 2, 4 and 12) is a confirmation that this designation is appropriate for these entities, an appropriateness that, certainly because it was considered evident and unnecessary, is not even explained in that instrument. That is, it would have been presumed that there are no doubts whatsoever that the entities managing pension funds are "financial institutions".

Moreover, for this purpose of interpretation, which translates to "reconstructing from the texts the legislative thought" (Article 9, No. 1, of the Civil Code), the normative value of the recitals does not matter, since what is at issue is not applying a statutory provision of that Directive, but rather its interpretative value in the finding that, in a legislative nature instrument of supranational value, the designation of "financial institutions" is considered appropriate to designate entities managing pension funds, without expressing any doubt.

Moreover, Article 30 of the Securities Code confirms that "pension funds and their respective managing companies" are encompassed in the designation of "financial institutions" by indicating them as "qualified investors" together with "other financial institutions" [paragraphs e) and f) of No. 1].

Thus, it should be concluded that the Tax Authority is correct in considering Pension Fund Management Companies as entities covered by the provision of Item 17.3 of the GTST, which extends to all "financial institutions".

In light of the foregoing, no grounds are seen to consider this interpretation unconstitutional, due to violation of the principle of fiscal legality or the principle of typicality, or of equality or legal certainty, since, being a concept that, like all legal concepts, requires interpretation, it does not present itself as insufficiently defined and, on the contrary, even has explicit textual support in the specific legislation of this sector of economic activity.

By the foregoing, the request for arbitral pronouncement fails in respect of the first defect imputed to the challenged assessments.

3.2. Question of Objective Incidence

The second question raised is whether management and administration commissions charged by managing entities to their respective funds are covered by the exemption provided for in paragraph e) of No. 1 of Article 7 of the Stamp Tax Code.

This rule, as worded during the years 2011 to 2014, establishes that the following are exempt from tax: "interest and commissions charged, guarantees provided and likewise the use of credit granted by credit institutions, financial companies and financial institutions to venture capital companies, as well as to companies or entities whose form and purpose meet the types of credit institutions, financial companies and financial institutions provided for in Community legislation, all of them domiciled in the Member States of the European Union or in any State, with the exception of those domiciled in territories with privileged tax regimes, to be defined by order of the Minister of Finance".

The Tax Authority understood that the exemption covers only those commissions "that are directly linked to credit granting operations, within the scope of activity exercised by the institutions and entities referred to in that regulation, which is not the case at hand".

The Claimant presented the following conclusions on this issue:

L. On the other hand, even if one wanted to (which is only admitted with caution but without admitting) consider the hypothesis that the commissions charged by the Claimant meet the requirements of subjective incidence contained in Item 17.3 of the GTST, the additional tax assessments and interest would still be illegal, given that the exemption provided for in Article 7, No. 1, paragraph e) of the STC would apply.

M. The Respondent began by justifying non-application of the exemption on the basis of an Opinion of the CTCS that makes a totally erroneous historical interpretation of the rule in question, especially regarding the amendments successively introduced by the 2001 and 2003 Budgets (despite admitting the error in the Inspection Report, the Respondent unjustifiably and incomprehensibly maintains its conclusions, making no comment on the same in its Response).

N. Subsequently, the Respondent opted to use a supposed "grammatical argument" by which the expression "and likewise" contained in that rule ineluctably imposed a relationship between credit granting, on the one hand, and interest, commissions and guarantees, on the other.

O. Now, from a linguistic analysis perspective, the "grammatical argument" stated by the Respondent is clearly rejected by such relevant tax doctrine as that of Joaquim Silvério Mateus, Vasco Branco Guimarães, Vasco Valdez Matias (in "Opinion MVGA" attached to the statement of grounds) and Maria Angelina Tibúrcio da Silva (in "Consultation" attached to the statement of grounds), but in particular (and perhaps even more decisively) by Professor Dr. António Manuel dos Santos Avelar, auxiliary professor at the Faculty of Letters of the University of Lisbon and a true specialist and scholar in linguistic matters, in an Opinion duly attached to the statement of grounds (to which reference is made for reasons of economy), and by António Santos Rocha and Eduardo José Martins Brás in their learned work (in "Taxation of Assets", Property Tax, Stamp Tax and VAT (Annotated and Commented), Almedina, 2015, page 579).

P. In this sense, the grammatical interpretation NEVER ADMITS that the part referring to "use of credit" be used as a condition to exclude from the exemption interest, commissions and guarantees.

Q. As can be attested by Vasco Valdez Matias, as the highest person responsible for drafting the rule under analysis.

R. Additionally, the Respondent also considered that, through a new wording given by the 2001 Budget to the then existing No. 2 of Article 6 (now Article 7) of the STC, the legislator had introduced a rule through which it would "clarify" – as an authentic interpretation – the meaning of the tax exemption applicable to commissions, limiting it to those that had a direct connection to credit granting.

S. However, what is observed is that No. 2 of Article 6 of the STC introduced by the 2001 Budget did not make any "authentic interpretation" (there was no gap in the law that justified resort to this instrument), but rather constituted a mere and normal delimitation carried out by the legislator (freely following its conception of fiscal policy) of the material scope of the exemptions provided for in paragraphs e) and f) of No. 1 of the then Article 6 (now Article 7) of the STC.

T. According to the Respondent, the "spirit of the normative rule" had remained unchanged over the years and, with this, there would be no impediment to such "spirit" being equally applicable, more than a decade later, to the case of the now Claimant (even if nothing in the letter of the law expressly provided for it).

U. However, given that no gap is known that would justify integration (and therefore, one is not in the presence of a law of interpretation), upon the repeal by the 2003 Budget of the wording of No. 2 of the then Article 6 of the STC that had been introduced by the 2001 Budget, a concrete legal effect must be attributed to it and to assert the contrary (as the Respondent does) is, in addition to being unwarranted, indicative of ignorance of the Law and of how different rules relate to each other, namely from a systematic and temporal perspective.

V. Additionally, from a rational, teleological and systematic perspective and, in particular, attentive to the thinking that presided over the action of the tax legislator in the creation and regulation of a certain number of exemptions provided for in the STC, namely the one found in paragraph e) of No. 1 of its Article 7, only one conclusion is possible to draw (shared, moreover, by all the illustrious doctrine and of which Joaquim Silvério Mateus, Vasco Branco Guimarães, Vasco Valdez Matias, Maria Angelina Tibúrcio da Silva, António Santos Rocha and Eduardo José Martins Brás are examples): commissions charged between financial entities should be exempt from Stamp Tax, in so far as neither entity is positioned at the end of the economic circuit.

W. As such, the interpretation advocated by the Respondent with respect to paragraph e) of No. 1 of Article 7 of the STC violates the constitutional principle of equality and the principle of typicality of tax law, as it restricts the application of a legally provided exemption, on the basis of the application of a rule repealed on 31.12.2002.

In light of the initial wordings of the Stamp Tax Regulation, approved by Decree No. 12,700, of 20-11-1926, and the General Table of Stamp Tax approved by Decree No. 21,916, of 28-11-1932, no exemption was provided for commissions charged for the provision of financial services.

With Decree-Law No. 119-B/83, of 28 February, "interest on loans granted for the acquisition of own housing" became exempt from tax (Article 120-A, No. 2, of the GTST).

Decree-Law No. 154/84, of 16 May, broadened the scope of this exemption, establishing that "interest on loans granted for the acquisition of own housing, as well as interest owed by credit institutions or near-banks to institutions of the same nature" are exempt from tax.

With Decree-Law No. 205/90, of 25 June, exemptions were added for "bid bonds, commissions inciding on bank guarantees and sureties established to guarantee customs rights and other impositions in respect to goods imported under suspensory customs regimes" (Article 4, single paragraph of the GTST), for "bank transfers effected by the Papal Nunciature in favor of the Holy See" (Article 120-A, No. 5, of the GTST), and for consumer credit operations (Article 120-B, No. 4, of the GTST).

Decree-Law No. 223/91, of 18 June, carried out a revision of exemptions relating to banking operations, amending No. 2 of Article 120-A of the GTST, but included no reference to commissions:

2 - The following are exempt from tax:

a) Interest on loans granted for the acquisition, construction, reconstruction or improvement of own housing;

b) Interest owed by credit institutions or near-banks to institutions of the same nature, both domiciled in Portuguese territory, as well as exchange operations carried out between the same institutions;

c) Interest on Emergency Agricultural Credit operations, created by Decree-Law No. 251/75, of 28 May, whose direct responsibility is assumed by the State, either as direct user or as guarantor;

d) Operations on certificates of deposit;

e) Bank transfers effected by the Papal Nunciature in favor of the Holy See;

f) Banking operations carried out between foreign financial branch offices installed in the Free Zones of Madeira and the island of Santa Maria and non-residents in national territory;

g) Sale operations with repurchase guarantee having as object Treasury Bills (TB) or credits in Public Investment Auction Lending System (PIALS).

With Law No. 2/92, of 9 March, paragraph h) was added to No. 2 of Article 120-A, with the following wording:

h) Commissions relating to export financing guarantees;

As with Decree-Law No. 162/94, of 4 June, paragraph b) of Article 120-A was amended to have the following wording:

b) Interest owed by credit institutions or financial companies to entities of the same nature and likewise exchange operations carried out between the same, all of them domiciled in Portuguese territory;

Law No. 24/94, of 18 July, amended No. 2 of Article 120-A of the GTST, now referring in paragraph b):

b) Interest owed by credit institutions, financial companies or other entities legally equivalent to them to institutions, companies or entities of the same nature, all of them domiciled in Portuguese territory.

The same exemption benefits exchange operations carried out between the same entities or between these and others of the same nature domiciled abroad, as well as the sale of foreign currency to commercial or civil companies in commercial form, public enterprises and individual businesspeople with organized accounting, intended for the payment of imported goods and services, within the scope of their activity";

As results from the legislative evolution reproduced regarding exemptions relating to financial operations, up to Law No. 150/99, of 11 September, which approved the first Stamp Tax Code (without replacing the previous Stamp Tax Regulation, approved by Decree No. 12,700, of 20 November 1926), regarding commissions, exemptions were provided only for those "inciding on bank guarantees and sureties established to guarantee customs rights and other impositions relating to goods imported under suspensory customs regimes" (single paragraph of Article 4 of the GTST) and those "relating to export financing guarantees" [paragraph h) of No. 2 of Article 120-A, added by Law No. 2/92, of 9 March.

With the 1999 Stamp Tax Code, exemptions relating to commissions related to financial operations came to be provided in paragraphs e) and f) of Article 6, as follows:

Article 6.

Other exemptions

1 - The following are also exempt from tax:

(...)

e) Interest charged and the use of credit granted by credit institutions and financial companies to institutions, companies or entities whose form and purpose meet the types of credit institutions and financial companies provided for in Community legislation, all of them domiciled in the Member States of the European Union, or in any State complying with the principles arising from the Code of Conduct approved by the Resolution of the Council of the European Union, of 1 December 1997;

f) Commissions charged by credit institutions to other institutions of the same nature or entities whose form and purpose meet the types of credit institutions provided for in Community legislation, domiciled in the Member States of the European Union, or in any State complying with the principles arising from the Code of Conduct approved by the Resolution of the Council of the European Union, of 1 December 1997;

Thus, there was an expansion of the exemption relating to commissions charged by credit institutions to other institutions of the same nature and entities provided for in this paragraph f) which came to encompass any commissions, regardless of whether or not they were related to credit granting.

Law No. 30-C/2000, of 29 December, amended those paragraphs e) and f) of No. 1 of Article 6 and amended its No. 2, as follows:

Article 6.

Other exemptions

1 - The following are also exempt from tax:

e) Interest charged and the use of credit granted by credit institutions and financial companies to institutions, companies or entities whose form and purpose meet the types of credit institutions and financial companies provided for in Community legislation, all of them domiciled in the Member States of the European Union, or in any State, with the exception of those domiciled in territories with privileged tax regimes to be defined by order of the Minister of Finance;

f) Commissions charged by credit institutions to other institutions of the same nature or entities whose form and purpose meet the types of credit institutions provided for in Community legislation, domiciled in the Member States of the European Union, or in any State, with the exception of those domiciled in territories with privileged tax regimes to be defined by order of the Minister of Finance.

2 - The provisions in paragraphs e) and f) apply only to financial operations directly intended for credit granting, within the scope of the activity exercised by the institutions and entities referred to in those paragraphs.

Thus, this No. 2 introduced an explicit restriction on the scope of the exemption referred to in paragraph f), since it came to apply only to "financial operations directly intended for credit granting", within the scope of activity exercised by credit institutions and other institutions and entities referred to therein.

In truth, the interpretative nature that the Tax Authority claims this No. 2 to have has no normative support, since the text of paragraph f) as worded by Law No. 150/99 left no room for any restrictive interpretation.

Moreover, in addition to Law No. 30-C/2000 making no reference to any intention to attribute an interpretative nature nor being any judicial controversy known regarding the scope of that paragraph f) as originally worded, the 2001 Budget Report, explains the scope of these amendments in a way that rules out any intention to clarify the scope of commissions covered:

In the matter of exemptions, an attempt is made to clarify the scope of the provisions of Article 6, No. 1, paragraphs e) and f), reviewing the identification of States where such entities are domiciled to an order of the Minister of Finance, similar, moreover, to the wording proposed for Article 57-A of the Corporation Tax Code. There having been difficulties on the part of economic operators in determining which States comply with the principles arising from the Code of Conduct, and there being consensus that the exemption should cover all States, with the exception of those commonly designated as "tax havens", this appears to be the best solution.

Furthermore excluded from exemption is interest and commissions charged, as well as credit granted, in situations where the credit in question is not directly intended for new credit granting. Given that credit obtained by credit institutions from other institutions of the same nature is intended for new credit granting, the exemption for such financial operations is justified since otherwise double economic taxation would occur, with negative effects, namely, at the level of competition. However, this justification does not apply in situations where such institutions resort to credit for other purposes.

As can be seen from this statement of reasons, only regarding "the identification of States where such entities are domiciled" is the intention to clarify affirmed.

Regarding the commissions covered, no intention to clarify is mentioned, but rather to exclude "from exemption interest and commissions charged, as well as credit granted, in situations where the credit in question is not directly intended for new credit granting", which, obviously, entails that these commissions that now become excluded were not previously excluded.

Therefore, the interpretative contribution of this 2001 Budget is precisely contrary to what the Tax Authority advocates, as it was clarified, rather, that the exemption relating to commissions did not apply only to "financial operations directly intended for credit granting".

Law No. 32-B/2002, of 30 December, amended paragraph e) of No. 1 of Article 6, which was reformulated to encompass the exemptions previously provided for in paragraphs e) and f) and eliminated No. 2, which had been introduced by Law No. 30-C/2000, with Nos. 3 and 4 of the previous wording becoming Nos. 2 and 3 of the new wording:

e) Interest and commissions charged and likewise the use of credit granted by credit institutions and financial companies to venture capital companies, as well as to companies or entities whose form and purpose meet the types of credit institutions and financial companies provided for in Community legislation, all of them domiciled in the Member States of the European Union, or in any State, with the exception of those domiciled in territories with privileged tax regimes to be defined by order of the Minister of Finance;

2 - (Previous No. 3)

3 - (Previous No. 4)

Thus, as well concluded in the decision issued in arbitral case No. 348/2016-T:

– "the said new paragraph e), resulting from the merger of the previous paragraphs e) and f) came to exempt from tax interest and commissions charged and likewise the use of credit granted by credit institutions and financial companies to venture capital companies, as well as to companies whose form and object meet the types of credit institutions and financial companies provided for in Community legislation, all of them domiciled in the Member States of the European Union or in any State, with the exception of those domiciled in territories with privileged tax regimes, to be defined by order of the Minister of Finance";

– "such legal rule would thus expand, in the first place, the exemption from stamp tax, then limited to credit, including the respective interest, granted by credit institutions and financial companies to entities of the same nature to credit, including the respective interest granted by credit institutions and financial companies to venture capital companies, then regulated by Decree-Law No. 319/2002, of 29 December";

– "the exemption would be expanded, in the second place, to commissions charged by credit institutions and financial companies to financial companies and venture capital companies";

– "the limitation of the exemption to operations directly intended for credit granting, within the scope of the activity developed by credit institutions and financial companies was thus expressly and not merely tacitly eliminated".

On the presumption, which must be presumed pursuant to No. 3 of Article 9 of the Civil Code, that the legislator knew how to express its thinking in adequate terms, it is obvious that the elimination of No. 2 of the previous wording has the effect of eliminating the restriction and not of maintaining it.

The letter of the new paragraph e) also points in this direction, as stated in the arbitral decision issued in case No. 348/2016-T, "the expression 'and likewise', which means 'equally', 'also' and 'in the same way', used in the new wording of paragraph e) clearly states that the exemption of interest and commissions charged applies in identical terms to the use of credit. It draws attention to the uniformity of the conditions for the stamp tax exemption of credit granted and interest charged with those of commissions charged, in operations in which the only participants were credit institutions and financial companies, having no restrictive scope".

With Decree-Law No. 287/2003, of 12 November, the regime of that paragraph e) of No. 1 of Article 6 came to be in paragraph e) of No. 1 of Article 7 of the STC.

Law No. 107-B/2003, of 31 December, amended the wording of this paragraph e), extending the exemption to guarantees provided:

e) Interest and commissions charged, guarantees provided and likewise the use of credit granted by credit institutions, financial companies and financial institutions to venture capital companies, as well as to companies or entities whose form and purpose meet the types of credit institutions, financial companies and financial institutions provided for in Community legislation, all of them domiciled in the Member States of the European Union or in any State, with the exception of those domiciled in territories with privileged tax regimes, to be defined by order of the Minister of Finance;

There was no legislative amendment to this exemption until 2016, so this is the regime applicable in the years 2011 to 2015 to which the challenged assessments refer.

Pension funds are also considered financial institutions, together with their respective managing companies, as inferred from Article 30 of the Securities Code [which in paragraphs e) and f) of No. 1 indicates "pension funds and their respective managing companies" as "qualified investors" together with "other financial institutions", as the Tax Authority refers in Article 68 of its Response]) and the aforementioned Directive 2003/41/EC of the European Parliament and Council, of 3 June 2003.

Thus, in light of the legal regime in force in the years 2011 to 2015 it must be concluded that the commissions charged by pension fund management companies to their respective funds are covered by the scope of the exemption provided for in paragraph e) of No. 1 of Article 7 of the STC.

It is true that, subsequently, Law No. 7-A/2016, of 30 March, added to Article 7 of the STC a No. 7 with the following wording:

7 - The provision in paragraph e) of No. 1 applies only to guarantees and financial operations directly intended for credit granting, within the scope of the activity exercised by the institutions and entities referred to in that paragraph.

Article 154 of this Law No. 7-A/2016 attributed to this No. 7 of Article 7 of the STC an interpretative nature.

However, for what was stated this restriction was not contained nor does it appear in the wording of paragraph e) of No. 1 of Article 7 of the STC, so we are dealing with a rule of innovative nature.

Thus, this Article 154 manifests an interpretation of retroactive application of a new restriction to the said exemption, which is incompatible with the constitutional prohibition of retroactivity of rules creating taxes, which appears in Article 103, No. 3, of the Constitution of the Portuguese Republic, as repeatedly understood by the Constitutional Court, regarding that Article 154 and the similar rule of Article 135 of Law No. 7-A/2016.

Therefore, the application of this rule of Article 154 of Law No. 7-A/2016 (Article 204 of the Constitution of the Portuguese Republic) must be rejected for tax facts occurring before its entry into force, namely in the years 2011 to 2015 to which the challenged assessments refer.

Thus, all the requirements provided for in paragraph e) of No. 1 of Article 7 of the STC are met, so all the commissions in question in the challenged assessments, charged by a pension fund management company to the funds it manages, are covered by the exemption.

Consequently, the challenged assessments are illegal, due to violation of paragraph e) of No. 1 of Article 7 of the Stamp Tax Code, which justifies their annulment, under Article 163, No. 1, of the Administrative Procedure Code subsidiarily applicable under Article 2, paragraph c), of the GTL.

The decision denying the petition for reconsideration is affected by the same defect, which also justifies its annulment.

3.3. Assessments of Compensatory Interest

The assessments of compensatory interest have as their prerequisite the assessments of Stamp Tax, so, having concluded on the illegality of these, those assessments are affected by the same defects, which also justifies their annulment.

3.4. Issues of Impeded Knowledge

Given that the request for arbitral pronouncement is to be judged meritorious on the basis of a defect of violation of law, which ensures stable and effective protection of the interests of the Claimant, it is impeded, as it would be useless (Article 130 of the Code of Civil Procedure), the examination of the remaining issues raised.

4. Compensation for Undue Guarantee

The Claimant also formulates a request for compensation for undue guarantee.

In accordance with the provisions of paragraph b) of Article 24 of the LFATM the arbitral decision on the merits of the claim for which no appeal or challenge is available binds the tax administration from the end of the period provided for appeal or challenge, and the latter must, in the exact terms of the finding of the arbitral decision in favor of the passive subject and until the end of the period provided for spontaneous execution of the judgments of tax courts, "restore the situation that would exist if the tax act subject of the arbitral decision had not been carried out, adopting the acts and operations necessary for the purpose".

In the legislative authorization on which the Government based itself to approve the LFATM, granted by Article 124 of Law No. 3-B/2010, of 28 April, it is proclaimed, as a primary guideline of the institution of arbitration as an alternative form of jurisdictional resolution of disputes in tax matters, that "the tax arbitral process must constitute an alternative procedural means to the judicial challenge process and to the action for recognition of a right or legitimate interest in tax matters".

Although Article 2, No. 1, paragraphs a) and b), of the LFATM uses the expression "declaration of illegality" to define the competence of the arbitral tribunals operating in CAAD and makes no reference to constitutive (annulment) and condemnatory decisions, it should be understood, in harmony with the referred legislative authorization, that the powers are included in its competencies that in judicial challenge proceedings are attributed to the tax courts in relation to acts whose appraisal of legality is included in its competencies.

Although the judicial challenge process is essentially a process of mere annulment (Articles 99 and 124 of the Tax Procedure Code), condemnation of the tax administration in the payment of compensatory interest and compensation for undue guarantee can be issued therein.

In truth, although there is no express rule to that effect, it has been consistently understood in tax courts, since the entry into force of the codes of the 1958-1965 tax reform, that a request for condemnation in the payment of compensatory interest can be cumulated in judicial challenge proceedings with the request for annulment or declaration of nullity or non-existence of the act, as in those codes it is stated that the right to compensatory interest arises when, in petition for reconsideration or judicial proceedings, the administration is convinced that there was a fact error attributable to the services. This regime was subsequently generalized in the Tax Procedure Code, which established in No. 1 of its Article 24 that "there will be a right to compensatory interest in favor of the taxpayer when, in petition for reconsideration or judicial proceedings, it is determined that there was error attributable to the services", thereafter, in the GTL, in whose Article 43, No. 1, it is established that "compensatory interest is owed when it is determined, in petition for reconsideration or judicial challenge, that there was error attributable to the services resulting in payment of the tax debt in an amount higher than legally due" and, finally, in the Tax Procedure Code in which it was established, in No. 2 of Article 61 (to which corresponds No. 4 as worded by Law No. 55-A/2010, of 31 December), that "if the decision recognizing the right to compensatory interest is judicial, the payment period begins at the start of the period of its spontaneous execution".

Regarding the request for condemnation in the payment of compensation for undue guarantee provision, Article 171 of the Tax Procedure Code establishes that "compensation in case of bank guarantee or equivalent improperly provided will be requested in the proceedings in which the legality of the debt subject to execution is contested" and that "compensation must be requested in the petition, challenge or appeal or, if its ground is subsequent, within 30 days after its occurrence".

Thus, it is unequivocal that the judicial challenge process encompasses the possibility of condemnation in the payment of compensation for undue guarantee and is even, in principle, the appropriate procedural means to formulate such a request, which is justified by evident reasons of procedural economy, since the right to compensation for undue guarantee depends on what is decided on the legality or illegality of the assessment act.

The request for constitution of the arbitral tribunal has as a corollary that it is in the arbitral process that the "legality of the debt subject to execution" will be discussed, so, as follows from the express tenor of that No. 1 of the said Article 171 of the Tax Procedure Code, the arbitral process is also the appropriate one to examine the request for compensation for undue guarantee.

Moreover, the cumulation of requests relating to the same tax act is implicitly presumed in Article 3 of the LFATM, when it speaks of "cumulation of requests even though relating to different acts", which allows one to perceive that the cumulation of requests is also possible in relation to the same tax act and the requests for compensation for compensatory interest and condemnation for undue guarantee are susceptible to being encompassed by that formula, so an interpretation in this sense has, at least, the minimum of verbal correspondence required by No. 2 of Article 9 of the Civil Code.

The regime of the right to compensation for undue guarantee provision is contained in Article 53 of the GTL, which establishes the following:

Article 53.

Guarantee in case of undue provision

1. The debtor who, to suspend execution, offers bank guarantee or equivalent shall be compensated wholly or partially for the damages resulting from its provision, provided he has maintained it for a period exceeding three years in proportion of the expiration of administrative appeal, challenge or opposition to execution that have as their subject the debt guaranteed.

2. The period referred to in the preceding number does not apply when it is determined, in petition for reconsideration or judicial challenge, that there was error attributable to the services in the assessment of the tax.

3. The compensation referred to in No. 1 has as its maximum limit the amount resulting from the application of the compensatory interest rate provided for in this law to the value guaranteed and can be requested in the petition itself or judicial challenge proceedings, or independently.

4. Compensation for undue guarantee provision will be paid by deduction from the collection of the tax in the year in which the payment was made.

In the case at hand, the legal error that affects the challenged assessments is attributable to the Tax Authority, as it was initiated by it and the Claimant in no way contributed to the legal error that affects them being committed.

Thus, the Claimant is entitled to be compensated for the damages that arose from the provision of guarantee to suspend the fiscal execution proceedings Nos. …2015…, …2015…, …2015… and … … (document No. 8 attached with the request for arbitral pronouncement).

In the absence of elements that allow determining the amount of compensation, the condemnation must be effected with reference to what shall be liquidated in execution of this decision (Article 609 of the Code of Civil Procedure and Article 565 of the Civil Code).

5. Decision

In these terms, the arbitrators of this Arbitral Tribunal agree to:

a) Judge the request for arbitral pronouncement meritorious;

b) Annul the additional Stamp Tax assessments No. 2015…, in the amount of € 12,891.12; No. 2015…, in the amount of € 24,868.31; No. 2015…, in the amount of €27,030.55; and No. 2015…, in the amount of € 26,514.07 relating, respectively, to the years 2011, 2012, 2013 and 2014; as well as the compensatory interest assessments Nos. 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, in the total amount of € 2,008.72, relating to the year 2011; 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, in the total amount of € 3,162.86, relating to the year 2012; 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, in the total amount of € 2,362.61, relating to the year 2013; and, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, in the total amount of € 1,269.65, relating to the year 2014;

c) Annul the decision denying petition for reconsideration No. …2016…;

d) Judge the request for compensation for undue guarantee meritorious and condemn the Tax Authority to pay the Claimant the compensation to be determined in execution of this decision.

6. Value of the Case

In accordance with the provisions of Article 306, No. 2, of the Code of Civil Procedure and Article 97-A, No. 1, paragraph a), of the Tax Procedure Code and Article 3, No. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at € 100,107.89.

7. Costs

Under Article 22, No. 4, of the LFATM, the amount of costs is fixed at € 3,060.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Tax Authority.

8. Notification to the Public Prosecutor

As the Public Prosecutor is represented in the other courts pursuant to the law [Article 4, No. 1, paragraph d) of the Statute of the Public Prosecutor] and representation of the Public Prosecutor before the arbitral tribunals operating in CAAD is not provided for in the law, let this decision be notified to the Most Excellent Attorney General of the Republic, in accordance with the provisions of No. 3 of Article 280 of the Constitution of the Portuguese Republic.

Lisbon, 20 December 2017

The Arbitrators

(Jorge Lopes de Sousa)